By George Davies, CEO, MooD International
According to the World Retail Banking Report, 77 percent of retail banks now outsource at least one part of their business. Common industry estimates show that outsourcing provides banks with a saving of 20–40 per cent, depending on whether processes are located locally or abroad. And across other industries around the world outsourcing is often the most viable solution for businesses that lack certain specialist skills in their internal teams, but need them to stay ahead of the competition.
There is a growing shift, in the UK and beyond, to multi-sourced outsourcing. The Coalition Government has endorsed this approach as one that supports competition, SMEs and stimulates growth. However with multiple suppliers, there needs to be another layer across the top which monitors all the different moving parts and can report to the client. The challenge is for this reporting to be relevant and linked to the business objectives.
Whether you’re a CFO setting up and managing a new supplier relationship, or taking steps to correct a contract that has become misaligned with the company’s business strategy, there are some recommended actions that can be taken.
Setting up and managing new supplier relationships:
1. Make sure you can speak the same language
At this early stage you can set up a framework that will start the supplier relationship off on a good foot. Using a performance analysis tool will keep you and your supplier focused on agreed outputs and make sure that the right expectations are set in place from the very beginning. A very common problem in outsourcing relationships is a misalignment of expectations, the supplier not listening carefully enough and the client is not being sufficiently realistic. A performance management tool creates a reason to be really clear on these points before the work begins and also remains a platform for this shared understanding to grow and change as the business or service does. It allows both sides to use a common language so that the impact on business performance is understood.
2. Agree key performance measures and monitor continually
As CFO you need to know what multiple suppliers are costing and how business changes are impacting the cost of contracts, as things are happening – not after the event. It’s all too common in the traditional outsourcing context to “Intervene against Failure” rather than “Manage for Success”. Quite often this is because the right tools are not available, but being able to see the trends at a business level, and pinpoint where outcomes are at risk of failing – before they do – means interventions can happen at the right time. This kind of early insight means you can read trends and adjust decisions based on what is happening rather than what has happened.
3. Create a proactive, transparent and business focused relationship
A challenge many clients face is that they find many suppliers are technical specialists but do not translate their work into business impact. This is something you have to get right at the beginning of your relationship – it will make it easier for you to check that the relationship is delivering value and line of sight on boardroom decisions. You also need to understand how critical transparency is with suppliers on a supplier-by-supplier level. Transparency will mean outsourcing can be performance managed to check that:
• Up and down the supply chain assets are being managed and maintained at optimal cost
• Evidence of the delivery of business value is accessible
• Risk can be better managed across service delivery and commercial boundaries.
Getting a relationship back on track:
1. Look for an ability to make changes and be flexible
Businesses and their needs change: it’s inevitable. If you are working with a supplier that seems unable to adapt with you or react to a change in objectives, this will be a recurring problem. Remember, we are working in a time where technology is driving a great deal of information change and is extending the possibilities for cost cutting as well as innovation. Try and work with your suppliers to make these things integral to your relationship, this focus could actually strengthen your relationship.
2. Use the right data and you won’t need a second spreadsheet
Big data is the buzz phrase of the moment. It promises to tell CFOs everything they need to know about their customers and business. But the volume of the data can be overwhelming and lack focus. It is better to start with your business need: what is it that you want to know or manage? Once you’re clear on this it is possible to look through the data you have and discover what variables are influencing the issues that are critical to the business. Many CFOs have a second spreadsheet with all the data their suppliers give them collated in one place – connected in a way that makes sense for the business rather than projects in isolation. Performance management tools can take away the need for this second spreadsheet, saving precious time and resource. Technology also reduces the likelihood of human error affecting numbers.
3. You can outsource everything but responsibility
When things go wrong or don’t seem to be working it is important to remember this golden rule. Although suppliers are providing you with an agreed service the ultimate responsibility will come back to the client paying for the service. If the service is customer facing and something goes wrong, it will be the company that is paying for the service that will suffer reputational damage first. If you have a clear way of managing the performance of your suppliers you can remain in the driving seat and steer the value you need from any and all of your outsourcing contracts.